Getting a Mortgage While in a Chapter 13 Bankruptcy

If you’re still in Chapter 13, this means that you are repaying a portion of your debts on a monthly basis and cannot freely carry out financial transactions such as getting or refinancing a mortgage loan, according to the United States Bankruptcy Court. While it is indeed possible to get a home loan while you’re still in Chapter 13, you should carefully consider whether it really is a good financial move during this stage of your life.

Function

The purpose of Chapter 13 bankruptcy is to allow overburdened debtors to receive leniency when it comes to bills such as credit card and medical debt, according to both the United States Bankruptcy Court and the book “How to File for Chapter 7 Bankruptcy.” A debtor in Chapter 13 is required to repay a portion of his debts under court supervision, usually over a three- to five-year period.

Considerations

You must obtain your case trustee’s consent to get any new credit, including a mortgage or a mortgage refinance, during your Chapter 13 plan. Also, because the fact that you filed Chapter 13 remains on your credit reports for seven years from the date you declared bankruptcy, you might have a hard time convincing a mortgage lender that you can truly handle additional debt. If a mortgage lender agrees to issue you a loan, you will likely need to pay much higher interest rates and also issue a down payment.

Expert Insight

You may be better off waiting to get a new mortgage until after you finished paying off your Chapter 13, according to MSN Money. After all, your recent bankruptcy status will dramatically impact your credit score; as the years following any bankruptcy filing pass, the damage to your credit rating lessens. Also, even if your Chapter 13 trustee allows you to seek a new mortgage or refinance an existing loan, you’re unlikely to qualify for the best rates due to your recent financial troubles.

Warning

Be careful when shopping for a subprime mortgage, whether you do so during or after Chapter 13, warns Bank Rate. Mortgages issued to borrowers with a history of significant financial troubles such as bankruptcy or home foreclosure often include potentially problematic provisions such as adjustable interest rates; while such practices reduce the risk to the lender, they markedly increase the risk of foreclosure if you once again run into unavoidable financial trouble.

Increasing Your Chances

If you can’t wait until you’ve finished paying off your Chapter 13 plan and your trustee agrees to allow you to get or refinance a mortgage, you can do several things to increase your chances of getting an acceptable “subprime” loan. While you can’t legally get new credit cards while in a Chapter 13 plan, you can implement basics such as budgeting and creating an emergency fund, according to MSN Money. Proving this, along with documentation that shows any circumstances that caused your Chapter 13 such as unexpected job loss, can go a long way toward garnering you serious consideration for a home loan.

About the Author

I have edited and written professionally since 1998. I have published over 1,300 articles, and personally interviewed Hillary Clinton on the presidential campaign trail. I also covered Barack Obama, Colin Powell, and Chelsea Clinton. I have worked for some of the county's best newspapers, including The Philadelphia Inquirer and The Virginian-Pilot. I can turn around copy quickly and accurately, and ensure other people's work meets the same standards. I also have transcribed for multiple TV shows, including "Dr. Phil" and "Inside Edition." I type about 100 w.p.m. I can start immediately and work often.{{}}{{}}